The Internal Revenue Service (IRS) is reminding employers about several tax credits and benefits they may be eligible for, including the Work Opportunity Tax Credit (WOTC), the Employer-Provided Childcare Credit, and Educational Assistance Programs. These incentives are available to businesses that hire individuals from certain groups, provide childcare services, or offer educational benefits to employees.
Below is an overview of each program, including eligibility criteria and potential tax benefits.
Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal tax incentive available to employers who hire individuals from specific groups that face barriers to employment. These groups include:
- Veterans
- Long-term unemployed individuals (unemployed for at least 27 consecutive weeks)
- Recipients of government assistance programs, such as Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), or Supplemental Security Income (SSI)
- Ex-felons, vocational rehabilitation referrals, and summer youth employees in designated areas
Tax Benefits:
Employers may claim a tax credit of up to 40% of the first $6,000 in wages paid to qualifying employees, with a maximum credit of $2,400 per eligible hire. Higher credits—up to $9,600 per hire—are available for certain categories, such as veterans with service-connected disabilities.
Claiming the WOTC:
To claim the credit, employers must obtain certification from their state workforce agency by submitting IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, within 28 days of the employee’s start date.
Employer-Provided Childcare Credit
The Employer-Provided Childcare Credit is available to businesses that:
- Operate on-site childcare facilities
- Contract with licensed childcare providers to offer services to employees
- Provide childcare resource and referral services
Tax Benefits:
Employers may claim a credit of up to 25% of qualified childcare facility expenses and 10% of childcare resource and referral expenses, with a maximum annual credit of $150,000 per employer.
Qualifying Expenses:
Eligible expenses include:
- Costs related to constructing, renovating, or operating a childcare center
- Training expenses for childcare staff
- Direct payments to licensed childcare facilities for employee use
- Costs associated with establishing a childcare referral program
Educational Assistance Programs
Employers may establish Educational Assistance Programs to provide tax-free benefits covering:
- Tuition, fees, and books
- Supplies and equipment for coursework
- Payments toward qualified student loans (available through 2025)
Tax Benefits:
Employers may provide up to $5,250 per employee per year in tax-free educational assistance. The amount is not considered taxable income for the employee, and employers may deduct these costs as a business expense.
Program Requirements:
Employers must establish a written plan defining the terms of the program. The assistance must be available to all eligible employees and used for qualified educational purposes.
Next Steps for Employers
More details on these tax credits can be found at:https://www.irs.gov/credits-deductions/businesses
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